Friday, June 15, 2012
Europe's Future Hangs in the Balance
June 15, 2012
Greek voters head to the polls on Sunday, and the future of Europe's common currency could hang in the balance. Investors fear that a leftist victory could trigger Greece's exit from the euro zone, magnifying problems in Spain and Italy. Adding to concerns, depositors are rapidly withdrawing their savings from Greek banks.
One way to look at Alexis Tsipras, the 37-year-old wunderkind of the Greek left, is as the leader of a small yet rapidly growing political party on the edge of Europe -- a party that stands to attract some 3 million votes in Sunday's election. Three million votes out of a European Union population of a half billion. Just over half of 1 percent.
There is another way to look at Tsipras, however -- as the European politician who, perhaps more than any other, holds the fate of the European common currency in his hands. It is this second interpretation that has the entire world gazing with fear as Greeks head to the polls this weekend. Tsipras, after all, has promised Greece that he will abandon the deep austerity measures imposed by the EU in exchange for bailout aid -- with Brussels threatening to suspend those payments, and send Athens into bankruptcy, should he do so. It is a game of political chicken that could bring down Europe.
Central banks around the world are preparing for the potential financial earthquake that could accompany a victory of Tsipras' Syriza party. Reuters reports on Friday that central banks in Britain, Canada, Japan, China and India are all working on contingency plans or have said they are prepared to take measures to counter any financial market turbulence that could result from the vote.
European Central Bank head Mario Draghi said on Friday that the ECB is ready to provide further liquidity to euro-zone banks. "The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral," he said. "This is what we have done throughout the crisis … and this is what we will continue to do."